Prediction of extreme price occurrences in the German day-ahead electricity market

Item Type Journal paper
Abstract

Understanding the mechanisms that drive extreme negative and positive prices in day-ahead electricity prices is crucial for managing risk and market design. In this paper, we consider the problem of understanding how fundamental drivers impact the probability of extreme price occurrences in the German day-ahead electricity market. We develop models using fundamental variables to predict the probability of extreme prices. The dynamics of negative prices and positive price spikes differ greatly. Positive spikes are related to high demand, low supply and high prices the previous days, and mainly occur during the morning and afternoon peak hours. Negative prices occur mainly during the night and are closely related to low demand combined with high wind production levels. Furthermore, we do a closer analysis of how renewable energy sources, hereby photovoltaic and wind power, impact the probability of negative prices and positive spikes. The models confirm that extremely high and negative prices have different drivers, and that wind power is particularly important in relation to negative price occurrences. The models capture the main drivers of both positive and negative extreme price occurrences and perform well with respect to accurately forecasting the probability with high levels of confidence. Our results suggest that probability models are well suited to aid in risk management for market participants in day-ahead

Authors Hagfors, Lars Ivar; Kamperud, Hilde Hørthe; Paraschiv, Florentina; Prokopczuk, Marcel; Sator, Alma & Westgaard, Sjur
Journal or Publication Title Quantitative finance
Language English
Subjects finance
HSG Classification contribution to scientific community
Date 14 September 2016
Publisher Taylor & Francis
Place of Publication London
Volume 16
Number 12
ISSN 1469-7688
ISSN-Digital 1469-7696
Publisher DOI 10.1080/14697688.2016.1211794
Depositing User Prof. Dr. Florentina Paraschiv
Date Deposited 06 Jul 2016 11:06
Last Modified 20 Jul 2018 11:46
URI: https://www.alexandria.unisg.ch/publications/248680

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Hagfors, Lars Ivar; Kamperud, Hilde Hørthe; Paraschiv, Florentina; Prokopczuk, Marcel; Sator, Alma & Westgaard, Sjur (2016) Prediction of extreme price occurrences in the German day-ahead electricity market. Quantitative finance, 16 (12). ISSN 1469-7688

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https://www.alexandria.unisg.ch/id/eprint/248680
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